China inflation: demand-led reflation ‘may yet take hold’ as consumer prices suffer steepest fall since 2009
- China’s consumer price index (CPI) fell for the fourth consecutive month in January, while factory-gate prices declined for the 16th straight month
- Risks of deflation have grown due to China’s weaker-than-expected economic recovery, lower food and energy prices and a prolonged property downturn
Deflationary risks are set to remain for China, analysts said, after consumer prices suffered their steepest fall since September 2009 in January, highlighting the issue of weak demand and the impact of the crisis in the property market.
Food prices continued to be the main drag on CPI, while NBS chief statistician Dong Lijuan attributed the year on year decline to a high base from 2023 as the Lunar New Year holiday took place in January last year.
“Looking ahead, a mild reflation is likely in 2024, helped by a favourable low base, while supply-side distortions, including low pork and car prices, should also ease. But with consumer confidence still sluggish, a demand-led reflation may yet take hold,” said Junyu Tan, a regional economist for North Asia at Coface.
CPI improved on a sequential basis for a second consecutive month after rising by 0.3 per cent in January from a month earlier, but this should not be interpreted as a “concrete sign of stabilising demand,” added Tan, due to seasonal factors related to the upcoming weeklong Lunar New Year holiday, which officially starts on Saturday.